Public Choice

, Volume 121, Issue 1–2, pp 131–155 | Cite as

Optimal Central Banker Contracts and Common Agency

  • Georgios E. Chortareas
  • Stephen M. Miller


This paper considers the contracting approach to centralbanking in a simple common agency model. We suggest thatcentral banker contracts that do not consider the possibilityof more than one principal existing are incomplete contracts.Such incomplete contracts can be a poor form ofmonetary policy delegation under common agency. We develop amodel with two principals – society (government) and ageneric interest group, whose objective conflicts withsociety’s ex ante preferences by incorporating an inflationarybias. We determine when the government-offered orinterest-group-offered contract dominates the central banker’sdecision. The results largely depend on whether theinterest-group-offered contract is written in terms of outputor inflation.


Public Finance Interest Group Central Banker Agency Model Common Agency 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Georgios E. Chortareas
    • 1
  • Stephen M. Miller
    • 2
  1. 1.International Economic Analysis Division, Monetary AnalysisHO-2 Bank of EnglandLondonU.K.
  2. 2.Department of EconomicsUniversity of NevadaLas VegasU.S.A.

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